China left out of Obama free trade party
By Geoff Dyer in Washington
Washington seeks deal with EU and Trans-Pacific Partnership
With the rise of China in its sights, the Obama administration has posted marines in Darwin, Australia and increased the number of warships visiting Subic Bay in the Philippines. The “pivot” to Asia now has a new stopover: Brussels.
After years of discussing the idea, the US and the EU are finally starting to negotiate a free-trade agreement which would form an economic zone covering 40 per cent of the world’s gross domestic products.
At the same time, momentum is building behind another important trade initiative, the Trans-Pacific Partnership which brings together the US with several of the Asia-Pacific region’s most dynamic economies: Singapore, Australia, Vietnam and – since two weeks ago – Japan. It will come as a surprise to anyone who spent a lot of time on the campaign trail last year but free-trade agreements have emerged as one of the biggest priorities of President Barack Obama’s second term.
The striking feature of this burst of free trading is who is absent. The agreements are an important part of the fresh ways Washington is developing to deal with China, the world’s biggest exporter of manufactured goods. After urging China to behave as “a responsible stakeholder” and after the brief flirtation with a G2 arrangement in Mr Obama’s first year, the new trade approach might be characterised as ABC – Anyone But China.
Supporters of the US-EU trade pact complain that it is about more than China. They point to the important boost to growth that could flow from a deal between two partners which already have a two-way annual trade in goods and services of $1tn.
But much of the substance of the EU talks and of TPP points to China. The agenda includes state subsidies for business and protecting intellectual property – precisely the sorts of issues that are becoming huge bones of contention with Beijing. If the US can get enough important countries to sign up, it hopes to establish global trading standards that China would feel obliged to respect.
On Capitol Hill, where free trade is not an easy sell in an era of unemployment of more than 7.5 per cent, the China angle is being used to rally support.
“This is very much part of our China strategy,” an aide to a leading Republican senator puts it, talking of the discussions with the EU.
More broadly, the two trade negotiations reflect a different approach to global governance. The prolonged deadlock over the Doha trade round, with similar stalemates about climate change, small arms and other issues, has generated profound scepticism about the idea of ever achieving global agreements on important issues.
TPP and the US-EU trade talks represent an alternative strategy, an attempt to forge fresh rules by appealing to smaller groups of like-minded nations, in this case working around China rather than with Beijing. Supporters say this is not an abandonment of global institutions such as the World Trade Organisation but simply a realistic assessment of how to get things done.
The big question, of course, is how China will react. Ever since it joined the WTO more than a decade ago, China has had one foot inside the global trading system and one outside.
On most of the occasions that China has lost legal challenges at the WTO, it has implemented the rulings and made its trade laws compliant. But Beijing has yet to open up government procurement, an important factor in an economy like China’s. At the same time, the extensive allegations of Chinese hacking of trade secrets from other countries are seen by many as an affront to the very idea of free trade.
Beijing has strong views about what is really going on. “The US is trying to rewrite global trade rules behind our backs,” says a senior Chinese official.
The risk of the new US approach is that it could encourage China to turn its back even more on the global trading system, diminishing the incentive to comply rather than intensifying it. If that were to happen, the US-EU trade talks would not herald a new era of economic integration but rather another nail in the coffin of globalisation.